25 Aug 2009

Government extends bank deposit guarantee

8:05 pm on 25 August 2009

The New Zealand Government's scheme to protect the public's deposits in banks and finance companies during the financial crisis is being extended for another year.

The retail deposit guarantee scheme was set up last year and was due to finish next October but Finance Minister Bill English has decided it will run until December 2011.

Mr English says there will be changes for those who want to continue after the original cut-off date. They include higher fees and a minimum credit rating of BB to qualify.

At present, people are covered up to a maximum of $1 million, but that will drop to $500,000 for bank deposits and $250,000 for non-bank deposits.

Those in the current scheme, but with a lower credit rating, will be excluded from the extended guarantee.

Mr English says extending the scheme will safeguard jobs and boost confidence in finance companies, in particular.

The minister says an early withdrawal of the guarantee could have left some finance companies scrambling for deposits and at risk of collapse.

He says finance companies are key lenders to small businesses and further collapses in the sector could have cost jobs.

By extending the scheme to the end of 2011 and raising fees for participants Mr English says the Government has balanced the risk to its books with those posed to the economy.

Mr English says extending the guarantee will help maintain confidence in New Zealand banks and other financial institutions. It brings the country into line with Australia.

However, Massey University banking expert David Tripe says the exclusion of riskier institutions under the new scheme could lead to less competition among lenders.